FC chap 2

1) Which one of these accounts appears on the right-hand side of a balance sheet?

• Property, plant, and equipment
• Accumulated retained earnings
• Accumulated depreciation
• Cash and equivalents
• Intangible assets

2) The entire book value of the residual ownership of a corporation is known as the:

• total equity
• intangible assets
• retained earnings
• capital surplus
• total assets

3) Which account represents the book value of all of a corporation’s net profits less its dividend payments?

• Capital surplus
• Accumulated retained earnings
• Treasury stock
• Common stock
• Preferred stock

4) Which one of the following is a current liability?

• Amount due to a supplier in 18 months
• Note payable in nine months
• Estimated taxes just paid
• Loan payment due in 13 months
• Amount due from a customer in 30 days

5) An increase in total assets:

• means that net working capital is also increasing
• requires an investment in fixed assets
• means that stockholders’ equity must also increase
• must be offset by an equal increase in liabilities and stockholders’ equity
• can only occur when a firm has positive net income

6) Which one of the following assets is generally the most liquid?

• Inventory
• Buildings
• Accounts receivable
• Equipment
• Patents

7) Which one of the following statements concerning liquidity is correct?

• Liquid assets generally earn higher rates of return than fixed assets
• If you can sell an asset next year at a price equal to its actual value, the asset is highly liquid
• Liquid assets are defined as those assets obtained within the past year
• The less liquidity a firm has, the lower the probability the firm will encounter financial difficulties
• Balance sheet accounts are listed in order of decreasing liquidity

8) Liquidity is:

• a measure of the use of debt in a firm’s capital structure
• equal to current assets minus current liabilities
• equal to the market value of a firm’s total assets minus its total liabilities
• valuable to a firm even though liquid assets tend to be less profitable to own
• generally most associated with intangible assets

9) Which one of the following accounts is included in stockholders’ equity?

• Long-term debt
• Deferred taxes
• Plant and equipment
• Accumulated retained earnings
• Dividends paid

10) Book value:

• is equivalent to market value for firms with fixed assets
• is based on historical cost
• generally tends to exceed market value when fixed assets are included
• is more of a financial than an accounting valuation
• is adjusted whenever the market value of an asset changes